Company Law for Business 1
Advise to the liquidator to do all he can to recover the creditors money.
I would start by saying that Chablis ltd and Muscadet ltd are wholly owned subsidiaries and are separate legal entities in their own right. When Brandy loaned the two subsidiary companies money, the loans were secured by fixed and floating charges over all of their assets, so first and foremost, this would need to be paid back with the money recovered when winding up these two businesses. The other creditors, which could be electricity companies or gas companies for example, did not secure the credit which they extended for Chablis and Muscadet, and therefore it would be extremely difficult to recover any money lost. However there are some exceptions in this case. One is that Brandy seemed to have a lot of control over the two subsidiary companies and therefore truthfully, Chablis and Muscadet may not be separate companies after all. All decisions had to be approved by Brandy, and the directors were nominated and paid by the parent company. If the creditors could prove, using evidence, that the decisions to enter in to the loans and credit agreements were made by Brandy on behalf of Chablis and Muscadet, they may be able to recover the money when taking this case to court. This could be proved by reading through board minutes, or by interviewing the directors of each company. If this was proved, Brandy plc may be liable for the credit and may have to pay back the money owed by its two subsidiary companies. The other exception is that Brandy was going through a particularly flourishing period and the connection between the two insolvent companies and Brandy was well known. I would advise the liquidator to investigate in to what extent this connection was known, and whether there were any statements used to imply this when agreeing the loans with the creditors. If the creditors were under the impression that the connection was enough for Brandy plc to keep the...
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